The 'Matthew Effect' Explains How Companies Like eBay Left Competitors In The Dust

In fact, if we went back in time and changed even the most
seemingly minor details — the moment a company started trading,
whether or not someone answered a phone call, and 100,000 other
scenarios — things would look very different.

That's what Frans Johansson argues in his new book,
The Click Moment: Seizing Opportunity in an Unpredictable
World. He offers a wealth of reasons to support his thesis,
including the concept that "complex forces" affect the universe
in random ways. One type of complex force is the
"self-reinforcing loop," which is the idea that gaining even the
most seemingly minor advantage is the basis for explosive
success. He gives eBay as an example:

"eBay is a two-sided market, meaning that it needs to attract
buyers and sellers. More buyers on the site serves to attract
more sellers, and more sellers attracts more buyers, creating a
virtuous cycle. It didn't take long before a small lead
gave eBay an insurmountable advantage. ... eBay
had a number of competitors during the late nineties, including
Onsale, Yahoo! Auctions, And Amazon Auctions. None of them made it.
By the end of 1999, a few years after eBay had launched, the
company had more than $10 million a day in gross sales, which was
20 times more than its closest competitor."

The reason eBay succeeded, says Johansson, is that it was lucky
enough to gain that first edge.
Malcolm Gladwell would call this the "Tipping Point," or the
"Matthew
Effect," named after a verse in the Gospel of Matthew that
says those given abundance will see that abundance increase
exponentially, whereas those with nothing will be left with an
even smaller share of the pie.

Without eBay's initial gain, he says, the online auction market
would look very different.